The Ifo Business Climate indicator for industry and trade in Germany continues its climb in October. The firms have once again given more positive assessments of their current business situation and their business expectations have improved. The engine of economic activity is running smoothly.

In manufacturing the business climate index has risen. The firms have reported a similarly favourable business situation as in the previous month, and their expectations with regard to the coming six months have also improved. Exporting firms have again given more favourable appraisals of their chances in foreign markets. The utilisation of equipment and machines in manufacturing has again increased slightly. The capacity utilisation rate in manufacturing is now approaching the long-term average. More firms are now planning to hire additional staff.

The business climate index in retailing has fallen slightly, to be sure: both the current business situation as well as the near-term business prospects have been assessed as not quite as excellent as in September. Still, the business climate in retailing remains very good. In wholesaling the business climate clearly improved. There were more frequent reports of a favourable business situation than in September. Also with regard to the six-month business outlook, the optimists among the surveyed wholesalers have again gained ground.

The business climate in construction has also improved. However, the surveyed contractors are less satisfied with their current business situation than in the previous month. The brightening of the business climate is solely the result of clearly more favourable appraisals of future business development.

The business climate index in retailing has fallen slightly, to be sure: both the current business situation as well as the near-term business prospects have been assessed as not quite as excellent as in September. Still, the business climate in retailing remains very good. In wholesaling the business climate clearly improved. There were more frequent reports of a favourable business situation than in September. Also with regard to the six-month business outlook, the optimists among the surveyed wholesalers have again gained ground.

The business climate in construction has also improved. However, the surveyed contractors are less satisfied with their current business situation than in the previous month. The brightening of the business climate is solely the result of clearly more favourable appraisals of future business development.

Hans-Werner Sinn President of the Ifo Institute for Economic Research at the University of Munich